Tikun Olam-Cannbit Pharmaceuticals Ltd's (TLV:TKUN) Popularity With Investors Under Threat As Stock Sinks 26%

Tikun Olam-Cannbit Pharmaceuticals Ltd (TLV:TKUN) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 21% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Tikun Olam-Cannbit Pharmaceuticals' price-to-sales (or "P/S") ratio of 0.5x is worth a mention when it essentially matches the median P/S in Israel's Pharmaceuticals industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Tikun Olam-Cannbit Pharmaceuticals

How Tikun Olam-Cannbit Pharmaceuticals Has Been Performing

As an illustration, revenue has deteriorated at Tikun Olam-Cannbit Pharmaceuticals over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Tikun Olam-Cannbit Pharmaceuticals' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

Tikun Olam-Cannbit Pharmaceuticals' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. Still, the latest three year period has seen an excellent 53% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 84% shows it's noticeably less attractive.

With this information, we find it interesting that Tikun Olam-Cannbit Pharmaceuticals is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Tikun Olam-Cannbit Pharmaceuticals' P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Tikun Olam-Cannbit Pharmaceuticals looks to be in line with the rest of the Pharmaceuticals industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Tikun Olam-Cannbit Pharmaceuticals' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Before you settle on your opinion, we've discovered 3 warning signs for Tikun Olam-Cannbit Pharmaceuticals that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.